Understanding a fundamental principle of Amazon pricing: Your competition controls how you price.
Let’s get the biggest sobering fact about Amazon pricing out of the way.
Most of the time, your competition sets your price
You don’t have that much control.
Hold on: isn’t the entire goal of this pricing strategy o arm you with the knowledge and strategies to set the optimal price for your Amazon inventory? Isn’t this mission in direct conflict with the statement “your competition sets your price.” What’s the story? I’ll explain.
First, here’s what I mean by the statement “your competition sets your price”…
In a perfect world, you would control your pricing
In a perfect world, you would have free range to set any price for any product that the market can bear. This is a world where an FBA seller could take a textbook selling for $20 Merchant Fulfilled, price it at $100 FBA, and get a sale. Very realistic.
However, we live in an imperfect world. You have competitors, most of whom are not so smart. Most of these competitors will probably price that book in the $30 to $40 range. And there will be many of them. While nothing explicitly prevents you from pricing that book at $100, your competitors make such a price unrealistic.
You are tethered to your competitors
While you don’t need to match (or underprice) your lowest price competitor, to one degree or another, you are tethered to them. Tethered to prices you had no control over. You are forced to price within range of listings that came before you. So, in a twisted way, your competitors have controlled how you price.
Throughout my writings on pricing strategy on this site, I talk about strategies that may leave you with the impression you can set whatever price you want. So let this chapter be a warning: You will be punished for ignoring competitors. For all but the most high-demand items, your competitors create constraints around the price you set.
Example of a competitor setting your price
Here’s an example:
A book with a “best seller rank” of 150,000. Amazon is selling it for $35. 20 used copies for sale. 10 of them are priced between $12 and $12.50.
In this (extremely common) scenario, you are all but forced to price between $12 and $12.50. It doesn’t matter what you want. It doesn’t matter what you paid for the book. It doesn’t matter what the market could bear if all competition was eliminated. You’re up against 10 competitors, and your price is forced into a narrow range. That’s it.
When it comes to pricing, you have range. You have options.
But most of the time, you also have competitors. And they are the single greatest influence on the price you set.
-Peter Valley
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